PET bottle chip downstream round-up in Jan-Jun 2022

PET bottle chip domestic demand totaled 4.61 million tons in Jan-Sep 2020, y-o-y growing 8.7%. Soft drink’s share in PET bottle chip domestic demand totaled 3.696 million tons in Jan-Jun 2022, y-o-y down 5%, the first negative growth in nearly 5 years, mainly due to logistics disruption and supply reduction under the epidemic. Small and medium-sized PET sheet enterprises are the most affected in this round, with demand for PET bottle chip falling nearly 15% from a year earlier. On the one hand, the epidemic control has led to worker shortage in many small and medium-sized enterprises, and the plant operating rate has been forced to decline. On the other hand, the cost of raw materials fluctuated too fast, and many enterprises suffered serious losses, so they had to choose other raw materials, such as bright chip and recycled PET etc. The demand for PET for soft drink has not changed much, but its share in total demand has increased indirectly, accounting for around 65 per cent of domestic demand in the first half of the year, up 3 percentage points from the same period last year. At the same time, the export market performed very well in the first half of the year, providing a strong support for domestic sales. The total export volume of China PET bottle chip from January to June reached around 2.34 million tons (the figure is assessed from two tariff codes), an increase of 42% on year. Overall, PET bottle chip industry has been destocking in Q1-Q2, mainly benefited from the substantial growth in overseas demand.

Looking at downstream purchasing rhythm, downstream procurement in the first half of 2022 is basically price-oriented, and the influence of seasonal factors has weakened. The main driving factors include: 1. Due to the large export shipping volume, long lasting epidemic control, logistics congestion and low industry run, PET domestic supply was tight most of the time, and the end-user customers basically built stock on demand. 2. PET price advantage gradually disappeared. Since PET sheet capacity expanded in drastic in early stage, hence even other general plastic prices declined, substitution impact on PET resin is relatively limited, but has indirectly led to demand growth of bright chip and re-PET. In addition, the procurement mode of large beverage manufacturers this year is slightly different from that of last year. Except for a few large beverage companies that still purchase in advance half a year or one quarter in advance, most of them are purchasing on demand, and the focus is back to spot and near-term goods.

From a quarterly point of view, although there is new capacity coming up in the first quarter, PET bottle chip factories have smoothly destocked, thanks to the intensive replenishment at home and abroad in the fourth quarter of 2021, and most plants have sold out materials ahead of time. Post Spring Festival holiday, crude oil rose sharply, caused by the war between Russia and Ukraine, and PET bottle chip price chased up to intra-year high, bringing a new round of replenishment. In the second quarter, due to the influence of epidemic prevention and control policies, logistics in many areas were blocked, downstream O/R and raw material transportation were greatly affected, and PET demand did not quickly enter the peak season, which dropped sharply compared with the same period last year. However, during this period, due to the sharp rise in crude oil value, the market price of PET bottle chip passively followed up, setting a new high for the year. After that, PET price rapidly retreated, and after price breached below previous low, there came another round of intensive restocking. Since the third quarter, due to the long duration of the hot weather, downstream beverage factories replenishment increased significantly in July, and the spot supply continued to be tight.

From the perspective of PET consumption in various production areas, due to the long duration of early epidemic prevention and control this year, the O/R of soft drink plants across the country has declined to a certain extent.

In the first quarter, market was greatly affected by the Spring Festival holiday, and most of the soft drink enterprises have intensively built stock in January. Beverage plants O/R during the Spring Festival has been near the new low in recent years, which gradually recovered after the holiday. However, affected by the further strengthening of epidemic prevention and control measures, the O/R of many beverage enterprises declined, and maintained relatively low compared with the same period last year. Not until after Jun, did the industry run rebound as control policy gradually eased. 

Soft drink operating rate in 2021-2022

From January to June in 2022, the overall supply and demand pattern of the domestic PET bottle chip market is relatively good, achieving the goal of destocking. But the actual performance is relatively abnormal separately looking from domestic and foreign sales, the main supporting force is still from exports, and the performance of domestic sales is not good. Factories can still benefit from exports in the third quarter, hence sales pressure is not great, pay attention to delivery. However, at the end of the third quarter and the beginning of the fourth quarter, as market gradually enters off-season, export shipments are expected to slow down, which is expected to increase the domestic sales pressure, coupled with the new capacity launch at that time, there may be a small accumulation in factory stock at the end of the year.